Indonesia’s nickel riches spur local company EV, battery ambition

From coal miners to conglomerates, Indonesia’s burgeoning electric vehicle and battery scene is attracting broad local corporate interest buoyed by the country’s rich nickel resources and government promises of incentives.

The involvement comes as global EV makers including China’s BYD and Tesla of the US have either signed or are “finalising” deals to invest in Indonesia, Luhut Pandjaitan, co-ordinating minister for maritime affairs and investment, told a briefing of Indonesian regional leaders last month.

Companies hope to ride on the government’s push to utilise the country’s nickel reserves to develop a battery industry, enter the global EV supply chain and develop a manufacturing base. With a population of more than 270mn, Indonesia also offers a potentially huge market.

But formidable challenges to individual, public and business adoption include consumer affordability, lack of public charging infrastructure and corporate governance questions over potential conflicts of interest arising from close relations among government officials, politicians and companies.

Among the most aggressive entrants so far is family-controlled Bakrie & Brothers, a conglomerate with interests spanning energy, infrastructure and telecommunications. It supplied dozens of BYD’s electric buses to the TransJakarta public bus system last year through subsidiary VKTR Teknologi Mobilitas and is seeking more deals.

“For 80 years, Bakrie & Brothers has focused on steel, infrastructure and other [areas],” Anindya Bakrie, company president, said at a public event in December. He added that the next three areas the company would focus on are electrification, renewable energy and digitalisation.

Indonesia is the world’s biggest producer of nickel, a key component in long-range EV batteries. Dozens of battery-related projects are under construction — mainly on nickel-rich Sulawesi and Halmahera islands, including ones led by Chinese battery giant Contemporary Amperex Technology (CATL) and its South Korean rival LG Energy Solution.

Some local companies are building smelters to process nickel ore into feedstock for battery production. Others are focusing on manufacturing and/or distribution of e-scooters and commercial EVs such as buses and trucks, as electric cars remain largely unaffordable for most Indonesians. Still others are installing charging or battery swap stations. And many are collaborating with foreign companies to catch up on technology and aid financing.

Besides Bakrie, other so-called old economy companies sense an opportunity. Major coal miners such as Indika Energy, Adaro Energy and TBS Energi Utama, armed with record profits from soaring coal prices over the past two years, see the EV sector as a way to diversify amid rising climate pressures.

Indika, through subsidiary Ilectra Motor Group, announced a partnership in January with Damon Motors to domestically distribute the Canadian electric motorbike start-up’s products. That follows Ilectra’s launch last year of e-scooter brand Alva One, while Indika formed a joint venture with Taiwanese tech group Foxconn — Foxconn Indika Motor — with initial plans to domestically manufacture batteries and electric buses.

TBS last year formed Electrum, a joint venture with Indonesian ride-hailing giant Gojek to supply 2mn e-scooters for Gojek drivers this decade. Electrum is partnering with Taiwanese e-scooter maker Gogoro and the Indonesian state-owned manufacturer of Gesits e-scooters for the procurement, but is also planning to build its own production facility this year.

Adaro, meanwhile, has set up battery subsidiary Adaro Baterai Indonesia and is building a $2bn aluminium smelter and supporting facilities on Borneo island, with the first phase expected to finish in 2025.

A key hurdle to EV uptake is lack of public charging infrastructure. Some companies are moving to fill the void.

Singapore-based EV start-up ION Mobility, in which GDP Venture — the venture capital arm of major conglomerate Djarum Group, owned by Indonesia’s richest men, the Hartono brothers — participated in seed funding, is preparing battery pack and e-scooter production in Indonesia. It also plans to install at least 100 charging stations in partnership with Indonesian state utility Perusahaan Listrik Negara (PLN).

Property majors are also enthusiastic. Sinarmas Land — the property arm of Sinar Mas Group, controlled by the Widjaja family — is looking to integrate electric buses as part of smart city features under development in its flagship suburban Jakarta township projects. John Riady, executive director of Lippo Group, focused on property and hospitals, told Nikkei Asia in November it is looking to invest in renewable energy and EVs — “probably doing that in partnership with entrepreneurs”.

Private sector participation adds to initiatives led by state-owned enterprises including oil and gas giant Pertamina, PLN, miner Aneka Tambang and mining holding company MIND ID. The four established the Indonesia Battery in 2021, which separately partners with CATL and LG Energy Solution to develop an “end-to-end lithium battery supply chain”.

Pandjaitan, the chief investment minister, said on February 2 that Indonesia could start producing lithium-ion batteries as early as 2024, adding to his statement last month that the country in 2027 “might become one of the world’s three largest producers” of those batteries.

Analysts see positives and negatives in those EV ambitions.

“Indonesia has a significant advantage when it comes to EV adoption,” Vivek Lath, a partner at consultancy McKinsey in Singapore, told Nikkei Asia in December, citing its nickel holdings and battery-related projects. “We expect a significant uptake in Indonesia going forward. And this is across the EV value chain.” McKinsey in an October note said Indonesia’s revenue pool from that chain is projected to reach nearly $50bn by 2035.

The government is also preparing incentives, including subsidies, and is targeting increasing electric car sales to 20 per cent of total car sales in 2025. Indonesia’s electric car sales shot to over 10,000 vehicles last year, from around 600 in 2021, according to wholesale data from the Association of Indonesia Automotive Industries, or Gaikindo. More than a million gasoline cars were sold the same year.

“These incentives will be given based on calculations and studies [into similar policies] in other countries, mainly [in] Europe,” Indonesian President Joko Widodo said in December. “We’ll reveal [them] after we finalise the calculations.”

Pandjaitan said the planned incentives, soon to be announced, include an approximately 7mn rupiah ($470) subsidy for each e-scooter purchase.

But the plan has stirred controversy, with critics arguing subsidies should be directed to the poor rather than helping people with money to buy electric cars. And concerns over potential conflicts of interest have sparked scrutiny into corporate-political relationships.

Among government officials and politicians affiliated with local companies getting into EV and battery businesses are Pandjaitan, whose family owns a stake in TBS, and Moeldoko, the presidential chief of staff, who runs electric bus company Mobil Anak Bangsa Indonesia, which is looking to supply government offices and SOEs. He also chairs the Indonesian EV Industry Association.

Septian Hario Seto, Pandjaitan’s deputy, told Nikkei that the co-ordinating minister now owns just 9.9 per cent of investment firm Toba Sejahtra, which has a minority stake in TBS, and that none of Toba’s executives or commissioners are involved in either TBS or Electrum. Pandjaitan “is actually in the process of selling his stake [in Toba]. He’s looking for a buyer,” Seto said.

A spokesperson at Moeldoko’s office overseeing transportation had not responded to Nikkei’s requests for comment by publication time. But Moeldoko, answering critics, told local news outlet detikX in October that the planned incentives would not benefit just certain groups of people, but “offer opportunities for the private sector” overall by providing “market certainty”.

Andry Satrio Nugroho, an analyst at the Institute for Development of Economics and Finance, a Jakarta-based think-tank, said nickel mining and processing are dominated by companies connected to local and national politicians. Environmentalists see such links as allowing companies to get away with poor mining and industrial practices.

Nugroho calls the situation “a form of moral hazard afflicting upstream to downstream” EV-related businesses and that political interests could lead to poorly targeted subsidies that, rather than incentivising EV users, would “only actually benefit” producers and EV dealers.

A version of this article was first published by Nikkei Asia on February 3 2023. ©2023 Nikkei Inc. All rights reserved.

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